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Boomtown no more: How Alberta’s economy has changed, in spite of sky-high oil prices

Oil producers having to put increased profits to paying off debt and shareholders
A pumpjack draws out oil from a well head near Calgary, Alta., Saturday, Sept. 17, 2022. In spite of high oil prices and record company profits this year, oil and gas towns aren’t seeing the same level of economic boom they used to a decade ago. THE CANADIAN PRESS/Jeff McIntosh

To take the temperature of the local economy, Lloydminster Mayor Gerald Aalbers only needs to look out the window.

From his office at City Hall, Aalbers — who, because Lloydminster straddles the Alberta-Saskatchewan boundary, has the unique distinction of serving residents in two provinces — has a direct line of sight to Highway 16. The highway is a major east-west corridor frequented by heavy-haul trucks and half-tons on their way to the oilfields that dot the surrounding region.

But in spite of 2022’s sharp uptick in crude prices (hitting as high as US$120 per barrel earlier this year before declining to the mid-$80 range this fall), and even as Canadian oil companies boast record revenues and all-time high production levels, the volume of traffic along the highway has only moderately increased, Aalbers said.

“We’re seeing traffic pick up earlier in the morning and a little more traffic throughout the city,” Aalbers said.

“That’s good, because it means wells are being drilled. It reflects some general optimism in the industry,” he added. “So I think we’re hitting some speed, but we’re not accelerating yet by any means.”

“Not accelerating yet” may be the perfect way to describe the odd economic reality Canada’s oil country finds itself in in 2022.

While the industry itself is faring better than it has in almost a decade, with energy prices higher than they’ve been in many years, experts say any kind of resulting economic explosion for the surrounding region has been conspicuously absent.

“If I would have told you two years ago that oil revenues in Alberta would be reaching record highs … you would have expected that Calgary and Edmonton would be booming, and the rest of the province too. And it’s not happening,” said Charles St-Arnaud, chief economist for Alberta Central, the central banking facility for the province’s credit unions.

In 2014, for example, the last time oil prices boomed, many communities in Alberta and to a lesser extent Saskatchewan felt like gold rush towns. Hotel rooms were booked solid, local bars buzzed with oilfield workers flush with cash and swagger, and people from all across the country streamed west in search of jobs.

But St-Arnaud, who recently published a report titled “Where’s the Boom?” said many things are different this time around.

The industry itself is doing very well — total oil production in Alberta hit an all-time record in the first half of 2022, averaging 3.6 million barrels per day.

And thanks to sky-high commodity prices, the total value of the province’s oil production between August 2021 and August 2022 was a whopping $140 billion, 75 per cent higher than the same period in 2014. In the first six months of this year, Canada’s four biggest oilsands producers alone reported more than $21 billion in profits, more than three times their profits in the same period last year.

But after almost a decade of depressed oil prices, producers have been under pressure in 2022 to use their extraordinary profits to pay down debt and focus on returns to shareholders rather than investing in their operations.

In 2022, oil producers reinvested only about seven per cent of revenues into their operations, compared to 25 per cent in 2014, St-Arnaud said. The nature of those investments has also changed, as companies forego capital-intensive projects aimed at boosting production in favour of smaller projects intended to improve efficiencies or lower greenhouse gas emissions.

The result is fewer workers and fewer economic spinoff effects. According to Statistics Canada, total employment in Alberta’s oil and gas sector is only 75 per cent what it was in 2014, while employment in construction, a spinoff sector, is only 80 per cent what it was then.

Similarly, wages in the oilpatch no longer outpace other sectors the way they once did, St-Arnaud said.

“You don’t need to offer sky-high salaries to attract workers, because you don’t need as many workers,” he said. “One of the things I’ve been noticing is we used to have wages in Alberta that were about 10 per cent higher than the rest of Canada – consistently, since the late 2000s. But the gap has been starting to narrow over the past few years.”

Duane Sulyma, a rigger who has worked everywhere from Grande Prairie and Rocky Mountain House, Alta. to Lloydminster and now Kindersley, Sask., said an oilfield job isn’t as lucrative as it once was, and workers are feeling the pinch of inflation.

“When I started in 2012, it was wild. I bought a new house, I bought a truck, I bought everything I ever wanted,” Sulyma said. “But the numbers don’t add up anymore, and the cost of living has gone through the roof.”

He added after the past eight years of low commodity prices and then the COVID-19 pandemic, many former oilfield workers have had enough of the volatility and have chosen to leave the oil and gas industry altogether.

“Nobody who has a town job wants to come out here, work for a year, get laid off and then have to struggle to find another town job,” Sulyma said.

St-Arnaud is convinced that the oil industry has changed permanently. And while that may bring with it some downsides, it also means that going forward, Alberta’s economy will be less sensitive to oil prices.

“That’s the thing, if there’s no boom — the bust will be smaller,” he said. “It’s not that oil is no longer a positive to our economy, it’s just not as positive as it was.”

That’s not necessarily a bad thing, said Sandy Bowman, mayor of the rural municipality of Wood Buffalo, which incorporates the oilsands community of Fort McMurray.

As Canada’s most well-known boomtown, Fort McMurray struggled in the 2010-2014 period to keep up with demand for housing, roads and other infrastructure as workers flooded into the community from across the country.

“Strong, steady growth is what you want to see. Those booms and busts we’ve experienced can be hard on everyone – not just the workers, but the community itself,” Bowman said.

Even getting a coffee from the Tim Horton’s drive-thru in Fort McMurray would take close to 20 minutes on average back then, Bowman said. Now, getting a double-double takes just 11 minutes “on a bad day,” he said.

While a major airport expansion completed in 2014 remains “under-utilized,” and the buzz of saws and other construction noises have lessened, Bowman said Fort McMurray’s economy in 2022 is healthy. Local residents are working and collecting paycheques, and life goes on.

“There’s still a lot of opportunity and there’s a lot of ‘help wanted’ signs around … the industry is just not expanding the way it was before,” Bowman said.

Amanda Stephenson, The Canadian Press

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